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It seems nothing could dissuade U.S. shoppers from splurging during the holiday shopping season. Although Wall Street did go through a topsy-turvy ride, not even the threat of a U.S. government shutdown or concerns raised by eminent economists of a global economic slowdown could deter the shopping spree. Instead a healthy U.S. economic backdrop provided the wherewithal to consumers to throng at stores and log onto online sites for the best bargains.

It goes without saying that retailers have finished off the holiday shopping season with a bang, which undoubtedly calls for investing in the space.

Retail Sector Enjoys Best Holiday Season in 6 Years

According to the most recent Mastercard SpendingPulse report, holiday retail sales (from November 1 through December 24) grew 5.1% last year to more than $850 billion, the strongest in six years. Apparel and home improvement mostly lifted retail sales.

Apparel sales from before Thanksgiving through Christmas soared 7.9% last year compared with 2017 – registering the best growth rate since 2010 – per Mastercard SpendingPulse that mostly tracks outlays in stores and online across all payment options. In fact, apparel sales gained momentum during the back-to-school season and accelerated right up to the Christmas season. Home improvement spending, by the way, increased across the United States at a rate of 9% over the holiday season. The trend commenced before the holiday season and continued all through the end of 2018. At the same time, home furniture and furnishing witnessed an increase of 2.3%.

It was also a memorable year for online retail, with sales climbing 19.1% over 2017, per the Mastercard study. One of the major online players, Amazon Inc, itself, recorded the best holiday season sales ever. The e-commerce giant claimed that it shipped a billion products for free in the United States alone through its Amazon Prime subscription program.

Steve Sadove, senior advisor, Mastercard and former chief economic officer and chairman, Saks Incorporated chipped in and said that “by combining the right inventory with the right mix of online versus in-store, many retailers were able to give consumers what they wanted via the right shopping channels.”

Black Friday & Thanksgiving Sales Have Been Massive in 2018

Mastercard total spend for Black Friday (online and offline) was $23 billion in 2018, up nearly 9% from the day after Thanksgiving in 2017. Further, Adobe Analytics that predominantly tracks digital sales announced that online purchases on Black Friday climbed 24% to $6.2 billion in 2018 compared with 2017. In fact, many shopped on their smartphones on Thanksgiving.

Online sales during Thanksgiving were $3.7 billion, up 28% from a year ago. This marked the fastest growing online sales in history on Thanksgiving Day, added Adobe. The Thanksgiving Day also turned out to be the first day in 2018 to witness $1 billion in sales on smartphones.

The strong holiday sales are being fueled by a healthy economy and high levels of consumer confidence. The U.S. economy got a boost in the third quarter of 2018, with GDP increasing at an annualized pace of 3.5%, per the U.S. Commerce Department. In fact, the country’s total output of goods and services followed an even stronger growth of 4.2% in the second quarter. The U.S. economy, thus, in the second and third quarters of 2018, taken together recorded the fastest six-month growth in four years and is on track to hit the Trump administration’s annual growth target of 3%.

Also, let’s admit spending rose primarily due to confident consumers. Skeptics may say that the Conference Board, a business research group, indicated that the confidence index had fallen to 128.1 last month from 136.4 in November. However, such a reading still shows that consumer spirits are high by historic standards.

4 Top Retailers to Buy Now

Given the record holiday shopping season, retailers are undoubtedly off to a strong start. Hence, it will be prudent to invest in four of the best retail stocks for handsome returns. The stocks also have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Abercrombie & Fitch Co.operates as a specialty retailer. It offers apparel, intimates, personal care products, and accessories for men, women, and kids under the Hollister, Abercrombie & Fitch, abercrombie kids, and Gilly Hicks brand names. The company currently has a Zacks Rank #1. The Zacks Consensus Estimate for earnings rose 22.7% in the past 60 days. The company’s expected earnings growth rate for the current year is 41.5% compared with the Retail - Apparel and Shoes industry’s projected rise of 10.6%.

Urban Outfitters, Inc.retails women's and men's fashion apparel. The company currently carries a Zacks Rank #2. The Zacks Consensus Estimate for earnings rose 2.6% in the past 60 days. The company’s expected earnings growth rate for the current year is 63.5% compared with the Retail - Apparel and Shoes industry’s projected rise of 10.6%.

DSW Inc.offers dresses, casual and athletic footwear, and accessories under various brands for women, men, and kids. The company currently has a Zacks Rank #2. The Zacks Consensus Estimate for earnings rose 3.5% in the past 60 days. The company’s expected earnings growth rate for the current year is 17.8% compared with the Retail - Apparel and Shoes industry’s projected rise of 10.6%. You can see the complete list of today’s Zacks #1 Rank stocks here.

RH, together with its subsidiaries, operates as a retailer in the home furnishings. The company currently sports a Zacks Rank #1. The Zacks Consensus Estimate for earnings rose 10.2% in the past 60 days. The company’s expected earnings growth rate for the current year is 175.1% compared with the Retail - Home Furnishings industry’s projected rise of 10.1%.

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